Mercury Quarterly Operational Update

Mercury Quarterly Operational Update

Three months ended 31 December 2016

Quarterly Highlights

- Strong momentum continues following Mercury re-brand
- Lowest customer switching rate of the major retailers
- Hydro generation forecast maintained at 4,250GWh for FY17

Commentary

MOMENTUM CONTINUED FOLLOWING RE-BRAND

For the second consecutive quarter, Mercury’s continued focus on rewarding customer loyalty resulted in the Company achieving the lowest switch rate (churn) amongst the major retailers. For the quarter ending 31 December 2016, Mercury’s annualised churn was 15.9%, 3.3% below the market average of 19.2% based on publicly provided Electricity Authority data. This continued the strong momentum delivered following the Mercury re-brand in July 2016 and contributed to customer numbers increasing by 6,000 over the period.

During the quarter, more than 100,000 customers were rewarded with a Free Power Day and almost 100,000 customers also registered to benefit from the Company’s new Airpoints partnership.

The average energy price to customers was down 4.4% to $106.11/MWh relative to the same period last year. This reflects additional commercial and industrial sales contracted throughout the year at lower prices than achieved historically (contributing to a $5.50 reduction in the VWAP of sales to business customers) and the timing of customer loyalty product offerings.

FY17 HYDRO FORECAST MAINTAINED

Total hydro generation increased 205GWh on the same period last year to 1,112GWh. This reflects inflows into the Taupo catchment being 28GWh above average and storage being 134GWh above average at the start of the period.

Based on the hydrological conditions observed throughout the quarter, Mercury continues to forecast midpoint FY2017 hydro generation at 4,250GWh.

LWAP/GWAP remained flat with the prior comparable period last year, at 1.03. This reflects a continuation of lower wholesale price volatility driven by above average national hydro generation. National hydro storage started 246GWh above average and remained above average throughout the quarter.

Reflecting the continued wet conditions, the locational wholesale price difference (basis) between Otahuhu and Benmore nodes was $8.38/MWh (or 21%).

DEMAND IMPACTED BY HIGHER TEMPERATURES AND WET CONDITIONS

After adjusting for temperature, national demand was down 3.2% compared to the same quarter last year. The irrigation, dairy processing and industrial sectors contributed -1.6%, -0.7%, and -0.7% respectively to the decrease in total national demand.

The decrease in the agriculture sectors can be attributed to the wet conditions experienced during the last six months with significantly lower South Island irrigation requirements compared to last year along with reduced national milk collection.

Mercury will release its financial results for the six months ended 31 December 2016 on 21 February 2017.

ENDS

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